The problem with Groupon

We have been early adopters of Groupon – the group buying site that recently got a valuation of 1.2 billion. Jon especially loves Groupon and is constantly looking for good deals through it. But after our experience last night, I decided never to use it for a evening out again.

We called the restaurant for reservations (mentioning that we were using Groupon – as the coupon instructed). We were given an appointment pretty late in the evening (though we called early). Once we got there, we were told there was a further delay. I don’t know for sure, but I think restaurant staff don’t really like Groupon users and treat them like they are free-loaders.

Back to restaurant – The food was mediocre. The atmosphere not the sort we would have chosen otherwise. In short – the only reason for trying this restaurant was the coupon.

We did not even eat enough to use the whole coupon (which is very unusual for Sushi). We had paid $25 for a Groupon coupon worth $55. At the restaurant, we paid $15 tax and tip (so we spent $40 total). If we had not used Groupon, we would have paid about $55 (tax, tip included). So we saved $15.

For $15 lesser, we ate rather mediocre Sushi at a place we did not like.

My previous uses of Groupon have been different – we often use half off coupon for a place we love to eat anyway. The problem is that we have to buy more food than we need and eat leftovers later. While I love that restaurant, the food does not work well for leftovers.

I have never been a coupon clipper – I don’t buy things at the grocery store just because they are on sales, or go to restaurants because they are having a half off promotion. Instead, I prefer to consume only what I need – if its on sale, that’s great. So maybe you argue I am not the right sort of user for Groupon.

However, I am price sensitive – if I am buying something online, I will always search for the best price. This is why I love shopping and price comparison engines – they let me find a great price for an item I already want. That is crucial – I find an item I want, then search for best price.

Groupon inverts that – it invites you to buy things you don’t want and gives you a discount on them. You find the discount at the same time as hundreds of people, so the restaurant (or other establishment) is overwhelmed and staff often treat the coupon holders as free-loaders. Does not lead to great experiences.

I will still try Groupon, but only for things I already want. And I will use it with groups, so we actually benefit from the volume you have to purchase.

45 responses to “The problem with Groupon

  1. I live exactly the same way. The definition of coupons to me is a con to buy something I wouldn’t have bought just because it’s a deal. I suppose there is a larger market of folks who fall for the mirage.

    Sorry to hear about your experience.

    Brett

  2. I doubt there are many that buy what they don’t want because it’s cheap.

    With a middle class family of four, we also look at price first, but the idea is with coupon shopping to look for coupons on items we actually use as opposed to coupons for products we wouldn’t need anyway.

    Occasionally, we will use coupons for like items if the price is right or, like this author did, use a coupon for something we might want to try for the sake of something different.

    You got to try a new restaurant and saved 15 on a crappy meal. I’ve had lots of crappy meals over the years and places I had never tried before (and haven’t tried since) but I unfortunately paid full price for the experience.

    Your experience at this restaurant is not unlike experiences I’ve had with “Entertainment” cards in the past, but that experience usually had more to do with the individual restaurant than they “Entertainment” card company.

    I found that using the card in combination with a rating service was an effective way to find good food at half price or 2fer1…

    I’d suggest you might want to try that combo for groupon as well next time ;^)

    Take care,

    Rob

  3. Rashmi, the whole “coupon thing for restaurants” does not work. One of my friends used to buy these when we go for family outings; we always felt so bad in the restaurants. They will find some problem or other; it gets inordinately delayed to pay the bill.

    In Indian restaurants, it is still worse; they look at us as if that we look for 99cent deals!

    Coupons are okay for products with shelf life. In fact, it is not worth buying anything without sale or coupons (because the prices are always doubled)!

  4. There are definitely limits to the GroupOn model on the customer side. Anything that’s service-intensive might not lead to a great experience.

    I’m more curious about the business side. Giving people around half off (which seems pretty common on the coupons I’ve seen) is pretty painful for a business unless you have tons of unused capacity and/or pretty high margins. I could see it being a good marketing tactic for new businesses or those with ambitious growth goals. But if you’re trying to maintain an exclusive brand or have slim margins, it’s probably a poor idea. I wonder how big the supply of GroupOn businesses will turn out to be on a steady-state basis.

    I did a little digging for business reactions to GroupOn. I didn’t find much, but here are a couple of interesting anecdotes:
    http://gesterling.wordpress.com/2010/03/25/the-dark-side-of-groupon-sites/
    http://www.collective-e.com/blog/flash-sales-series-groupon-good-your-business-collective-e-members-dish-about-their-experiences

  5. Facebook’s Russian Investor Gets $135 Milion Stake in Groupon

  6. Hi Rashmi-

    You raise a number of key issues and ones that I personally consider too, just as a consumer.

    Your point of differentiating your customers is a really savvy, important one — for businesses of every size it’s historically been tricky to know ahead of time who is a freeloader, and who is a genuine new customer that could become a lifelong buyer. There are ways to do this for sure…

    I won’t comment on Groupon specifically, but I’d like to address the core of your issue: to be treated well as a customer, sometimes it’s important to find the program that shares the value you bring to the business, with the business. Occasionally this requires membership and promotes exclusivity… and it works. Consider: the average spend and recurrence of American Express cardholders (and their membership program) are both higher, across merchants and categories of commerce. Given this, it becomes clear why Amex charges merchant a bit higher rates for purchases using their Amex card, and why cardholders get special deals.

    So in the early stages of this new, rapidly developing market, one dimension that businesses don’t often consider is how to design their offer so that benefits the business. I know of one company that works hard to design offers that work to balance the interests of merchants with a high value membership… and addresses the “freeloader factor” with providing more personalized/targeted offers…

    and i personally hope you have a chance to consider alternatives to Groupon, and you don’t give up. There’s hope!

    -Jared

  7. I would think that if a business is offering a coupon (or Groupon) their goal is to get you into the store , convince you how great they are, and convert you into a long term customer. If they at the same time are viewing these customers as “free-loaders” that seems antithetical to their goal.

  8. I will suggest trying out Groupon for parties instead, rather than family dinners, By parties I mean, a group of more than 10 people going together for a dinner because then you will enjoy more because of the company and food becomes secondary. Also, the savings will enable you to spend that much extra in your adventures like long drive after dinner, boat ride, going to a casino etc. – try this out with Groupon

  9. Hi, Rashmi,

    Paradoxically one side resataurant offered such selling due to minimize their cost of acquiring a new customer or increase number of footfalls in that restaurant. On there side by such behavior(restaurant), they are loosing business.

    So this trend is not going to work any more. I think you will never get such treatment in future. There must be miss match in Restaurant management and staff.

  10. Never tried this…but interesting article.. I can see the business value behind such coupons….hopefully in India, it’ll succeed too..

  11. About 12 Groupon clones have popped up in India in last 6 month. I agree with Rashmi that post purchase experience cannot be really controled by Groupon or any group buying site. However, the group buying site themselves can test these eating joints / Spa’s before putting the deal on the site. Some manner of control if you will.

    I do believe in the concept and do think this can do well in country like India because the delivery of coupon is digital which is instant and gives high level of gratification to the purchaser. Traditional ecommerce still faces lot of challenge in India where physical delivery of product is a HUGE challenge.

    Groupon is meant to scale and in Indian market this will get traction with support of social media. Remember there is lot of distress unsold inventory in india which is not the case in US. the merchants in india are will to give discounts and cut margin. It will be nice to see how the market evolves here.

    cheers,

    Tej

  12. It is so astonishing to see 7 different clones of Groupon now operating in India. all without clarity of where they are going and any uniqueness. The latest one to join in is taggle.

    Does anyone know the future of these ventures ?

  13. I fully agree. I am working an app that will solve a couple of your main issues with Groupon. I will be sure to contact you when its finished.

    @Tej I am interested in hearing more about unsold inventory and how Groupon type sites catch on in the Indian market.

  14. The ideal customer-centric model for a group buying site could be to allow a group of customers to state their intentions to buy and allow companies to bid for their business.

    This way the companies know that they want this business and are bound to treat the customers well. Afterall they have every choice not to bid for business.

    However this is a revenue management nightmare both for the aggregator and for the businesses, as there is just no way to build capacity to serve an unknown demand for a product/service that wont be defined till someone states the intention. (Its for this reason, in 2006 I decided to give up on an early stage idea on aggregation)

    Groupon and the likes are imperfect yet pragmatic models.

    • Ashwin,
      I like your perspective and thoughts on the business model in discussion. The model you suggested can add strength to Groupon’s model, and help it market its services more effeciently.

    • Ashwin,
      I like your perspective and thoughts on the business model in discussion. The model you suggested can add strength to Groupon’s model, and help it market its services more efficiently.

  15. I just used a coupon from the daily save (like Groupon) The coupon was for $20 worth of food for $10.00. The coupon clearly stated that it was one per table of two, two per table max. Well we tried to use 2 coupons for a table of 3 and had a big problem and were treated like scum. I would rather have stayed home. We only went there because of the coupon. Restaurants need to school their staff if they expect this type of marketing to work. Is’nt the idea that you want to go back because you have a good experience and if you go back wouldn’t you be paying full price? Restaurant staff clearly don’t understand the concept. It’s too bad.

    • 1 per table of two, and two people per table max is how that reads. not two coupons per table. They are telling you that you can’t use it for more than two people.

  16. some stores really do that, they treat customers who paid higher well than the one’s who uses discount opportunities.. I really hate that. they are the one who offer discounts so they should do they work well

  17. This is a real bad deal for small business owners. Think about this, for a $100 product/service, if you advertise it for $40 (60% discount) and then Groupon takes $20 (50% their cut), you are left with $20. If your cost of good sold is $20, your operating margin will be zero, a BIG ZERO.

    The type of customers that you would get are deal seekers, meaning these would be hardly coming back until you offer them a similar heavy discount to return while they are at your location.

    Stay away from Groupon. These folks need to understand that the deal has to be win win for both, the customers and the business owners, both. If only one side wins always, the business model will not be viable in long term.

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  20. If you like Groupon you will love http://www.discountmycity.com. It will lauch in a few days. You will be able to pick what you want discounts on. It will work off of zip codes rather than citys. It will have a better rewards system for refering new members. The discounts should be better since the fee to the merchant will be much less.

    • Bernhard Haidinger

      Hi Mark

      Many thanks for your comment. Just wondering how the reception of your site is/was?

      Would appreciate a reply,

      B.

  21. Online coupons are very popular in like European countries. India need to adapt such a convenient facility with open heart otherwise such schemes not survive here. Indeed offering online coupons is a great way to promote local business

  22. Hi,
    I always thought discounts were a way to attract customers and should not be the mainstay of the business. In India esp, discount mania is a problem as small entrepreneurs cannot compete with discounting tactics by bigger sellers and these days these bigger sellers are into everything ( An oil company selling vegetables, running hotel at the same time).
    I feel that too much discount and many times in a year bring down the credibility of the brand. Do it too often and you will get customers who are discount driven ( not good for business).
    Discount sites are also proliferating here and if this is the future goodbye to value creation and quality.
    Ashvini Kumar Saxena
    Thoughts on Entrepreneurship, Leadership and Motivation

  23. It is a tough balance trying to drive traffic thru discounts or free offers and the expectation that some of these visitors will turn into customers.

  24. Great post. I have been thinking about the benefits and drawbacks of a groupon from a business’ perspective, but had not fully internalized what it means to be a customer (particularly) at a restaurant that perhaps sold more groupons than it wanted to (or just as bad) far less. The repeat buying experience is at the core of restaurant success – the problem with groupon customers is only exacerbated if the restaurant treats those users less well than other customers – in fact, it totally defeats the purpose of offering a discount in the first place. Moreover, it is probably difficult for the average restauranteur to ignore the sunk cost (or loss) in this case of having offered his food at a discount – therefore making it more difficult to really treat this customer with the respect they deserve.

    Very interesting – thanks for sharing.

  25. My personal rule: Always cross-check with Yelp or other review sites before purchasing a Groupon, LivingSocial, or any other daily deal or social buying site.

  26. Everyone loves a bargin and its good to see such sites.

  27. I haven’t had much luck with online coupons. Either in finding them useful or using them as a quality tool to bring in customers. It may be that I have’t used the right ones or designed mine effectively.

  28. @Arpan Now in india too, you could enjoy restaurant food by the medium of discounted coupon. snapdeal.com is best among the other group buying sites. One require to choose the city to see the deal for the day in one’s city.

  29. Sorry to hear you tried and fell for groupon. I havent and will take your pointers. One look at groupon I wondered their value add to a merchant other than lining-up consumers, that is good as long as it is a merchandise/product business. If it is a service oriented business that cater to groupon-users few things (1) they got to appease a brand new generation of users, (2) they (merchants) dont derive anything wrt revenue from groupon users who in first place want to save money. So quality-of-Service (QOS) suffers as your experience indicates here. I am a bit awed that you even tried it … cheers!

  30. A saying: eating cheap aint going to work. You get what you pay for. It is a capitalistic world …. these are reality phrases one learns early. these years gen-X and gen-Y with “i know it all, soc-networking, web 2.0 is it” will experience groupon like for life. best to you.

  31. Yes I am a waiter & yes we do spit in your food. There is no faster way to show a server that you are a cheap, classless moron than to whip out a groupon coupon at the start of a meal. My check and tip average went out the window when my restaurant started a groupon promotion. So far 90% of the customers that use this service are awfull. Think of it like this, if you have a nice table with a two or three hundred dollar bill and another table with a groupon spending three dollars and probably tipping five, which one are you going to try to give better service to? We are even threatened by our bosses and given write ups because of these crappy customers.I know many waiters looking for new jobs right now because of the groupon phenomenon. So think of this before you purchase a groupon coupon, do I like spit or boogers in my food?

  32. I had equally bad experience with Groupon. I love movies and when I saw I was getting 4 tickets worth $56 for just $20, I jumped on it. I wanted to use them to watch HP in IMAX. So, when time came I tried to redeem my groupon for other coupon codes at weeklycinema.com (don’t worry about me naming names…you’ll know later in my comments, why) I would have had to use fandango.com to buy my tickets and use the second set of coupon codes. First, weekly cinema didn’t let me redeem the groupon online because I didn’t want their monthly subscription. The customer service number was of no use either. There was no system behind that number and my calls went in loops. After a couple of days, when I tried my luck again at weeklycinema.com, I got my coupons. But, guess what !! Those coupons were no longer valid, because weeklycinema.com had gone out of business. what a bummer !!!

  33. I have had a similar issue and experience. However, I let groupon know and they called the company and told them that they needed to treat us equally and refunded my cost. I will definitely keep using groupon because they stand behind what they offer. And if you are buying more than you normally would then split the check with another couple or take your friends out to dinner. Then it is easy to spend the money.

  34. Yes I like Groupon.

  35. Does google acquires Groupon?

  36. With regards to Groupon please all business owners stay away, when you own and run a your own company, you normaly have control over costs clients and timings, with Groupon you will not have control over anything, and now they are worth 7 billion dollars est you will have to go to court over any questions you want to be awnsered as they will not be fair or help at any stage BE AWARE ! STAY CLEAR!

  37. GROUPON is bad for a business, and I speak from experience. As a business owner who has run offers with Groupon, my own reaction now is “never again!”. The promise of lots of customers is very enticing, and the sales pitch from Groupon is aggressive. Imagine hundreds of new customers flooding through your doors. Sounds enticing, doesn’t it.
    For business owners, however, you should stay away from Groupon unless you can make a worthwhile profit from each customer at the first visit.
    The customers you get from a Groupon offer are almost invariably ‘bargain hunters’. They will not become repeat business or purchasers who will add value to your company. Sadly, they can be more unpleasant or difficult to deal with than typical higher-price paying clients.
    Unless your marginal cost is very low and you can make money without counting on repeat business, avoid Groupon!

  38. Boycott Groupon. A copy of my email to Groupon”
    “Shame on you for exploiting the misery of the Tibetan people to advertise your company. If this is the sensitivity you have for others, you surely can’t be a company I want to do business with. Take me off your email list and see if you can find a way to benefit the Tibetan people instead of exploiting them for your gain.”
    Boycott Groupon

  39. Rashmi….when are you planning on putting up new posts – we’re almost approaching one year (getting ready to celebrate your barsi).

    Interval.in | Dekho.in
    Bollywood Social Network

  40. Sounds like the restaurant has some issues with food quality in the first place. I do think Groupon can be valuable, both to the user and the business. Businesses (restaurants especially) need to figure out their balance with it as a tool. Much like Google Adwords or Facebook Ads.

    But if the food is mediocre, then the food is mediocre. Which is a bummer…

  41. Hi Rashmi,
    It is a great post and I truly agree with you. I’ve cited your posting in my blog (in Japanese) as one example that US customers are having bad experiences with Groupon’s coupon. Similar problems are now happening in Japan as well – I personally think Groupon’s business model itself harms the long-term relationship between shops and customers, which is most important for small – mid sized local companies.